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FHA expands mortgage eligibility for Covid-affected borrowers
On July 7, FHA announced expanded mortgage eligibility for qualifying borrowers who previously experienced employment gaps or loss of income due to the Covid-19 pandemic. Under Mortgagee Letter (ML) 2022-09, salaried and hourly wage-earners, as well as self-employed individuals impacted by a Covid-19 related economic event (defined “as a temporary loss of employment, temporary reduction of income, or temporary reduction of hours worked during the Presidentially Declared COVID-19 National Emergency”), who now have stable income will have a greater opportunity to purchase a home using affordable FHA-insured mortgage financing. Specifically, ML 2022-09 updates calculation guidelines for a borrower’s effective income under certain sections in the Single-Family Housing Policy Handbook 4000.1. While ML 2022-09’s provisions are effective for all case numbers assigned on or after September 5, 2022, lenders may begin using the policies immediately. According to FHA Commissioner Julia Gordon, the changes further agency efforts “to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic.” Gordon noted that the pandemic impacted “the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale.”
Treasury releases fact sheet on digital asset international engagement
On July 7, the Secretary of the Treasury released a Fact Sheet on the Framework for International Engagement on Digital Assets. The Fact Sheet was delivered to President Biden, as directed in the Executive Order on Ensuring Responsible Development of Digital Assets (E.O.) and in consultation with the Secretary of State, the Secretary of Commerce, and the heads of other relevant agencies. The E.O. outlined an interagency approach to address the risks and harness the potential benefits of digital assets and their underlying technology, and directed the Administration to promote the “development of digital asset and central bank digital currencies (CBDC) technologies consistent with [the Treasury’s] values and legal requirements.” According to the announcement, “the framework is intended to ensure that, with respect to the development of digital assets, America’s core democratic values are respected; consumers, investors, and businesses are protected; appropriate global financial system connectivity and platform and architecture interoperability are preserved; and the safety and soundness of the global financial system and international monetary system are maintained.” The announcement also noted that “a history of robust engagement provides a strong foundation for expanded, strategic engagement going forward” and highlighted other key international engagements.
CFPB publishes rulemaking agenda
Recently, the Office of Information and Regulatory Affairs released the CFPB’s spring 2022 rulemaking agenda. According to the preamble, the information in the agenda is current as of April 1, 2022 and identifies regulatory matters that the Bureau “reasonably anticipates having under consideration during the period from June 1, 2022 to May 31, 2023.”
Key rulemaking initiatives include:
- Consumer Access to Financial Records. The Bureau notes that it is considering rulemaking to implement section 1033 of the Dodd-Frank Act to address the development and use of standardized formats for information made available to consumers. The Bureau will release materials in advance of convening a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA), in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy.
- Amendments to FIRREA Concerning Automated Valuation Models. The Bureau is participating in interagency rulemaking with the Fed, OCC, FDIC, NCUA, and FHFA to develop regulations to implement the amendments made by the Dodd-Frank Act to FIRREA concerning appraisal automated valuation models (AVMs). The FIRREA amendments require implementing regulations for quality control standards for AVMs. The Bureau released a SBREFA outline in February 2022 and estimates in the agenda that the agencies will issue an NPRM in December 2022 (covered by InfoBytes here).
- Property Assessed Clean Energy Financing. The Bureau issued an ANPR in March 2019 to extend TILA’s ability-to-repay requirements to PACE transactions (covered by InfoBytes here). The Bureau is working to develop a proposed rule to implement Economic Growth, Regulatory Relief, and Consumer Protection Act section 307 in May 2023.
- Small Business Lending Data Collection Under the Equal Credit Opportunity Act. Section 1071 of the Dodd-Frank Act amended ECOA to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses, and directed the Bureau to promulgate rules for this reporting. The Bureau issued an NPRM in August 2021, and the comment period ended January 6 (covered by InfoBytes here). The agenda indicates that the Bureau estimates issuance of a final rule in March 2023.
- Adverse Information in Cases of Human Trafficking Under the Debt Bondage Repair Act. The National Defense Authorization Act amended the FCRA to prohibit consumer reporting agencies from providing reports containing any adverse items of information resulting from human trafficking. In June 2022, the CFPB issued a final rule implementing amendments to the FCRA intended to assist victims of human trafficking (covered by InfoBytes here).
CFPB advisory stresses “permissible purpose” of consumer reports
On July 7, the CFPB issued an advisory opinion to state its interpretation that under certain FCRA-permissible purpose provisions, a consumer reporting agency may not provide a consumer report to a user unless it has reason to believe that all of the information it includes pertains to the consumer who is the subject of the user’s request. The Bureau explained that “credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy,” and reminded covered entities that “FCRA section 604(f) strictly prohibits a person who uses or obtains a consumer report from doing so without a permissible purpose.”
Among other things, the FCRA is designed to ensure fair and accurate reporting and requires users who buy these consumer credit reports to have a legally permissible purpose. Specifically, the advisory opinion clarifies that (i) insufficient matching procedures can result in credit reporting companies providing reports to entities without a permissible purpose, thus violating a consumer’s privacy rights (the Bureau explained that if a credit reporting company uses name-only matching procedures, items appearing on a credit report may not all correspond to a single individual); (ii) it is unlawful to provide credit reports of multiple people as “possible matches” (credit reporting companies are obligated to implement adequate procedures to find the correct individual); (iii) disclaimers about insufficient matching procedures will not cure a failure to take reasonable measures to ensure the information provided in a credit report is only about the individual for whom the user has a permissible purpose; and (iv) credit report users must ensure that they are not violating an individual’s privacy by obtaining a credit report when they lack a permissible purpose for doing so.
The Bureau also outlined certain criminal liability provisions in the FCRA. According to the advisory opinion, covered entities may face criminal liability under Section 619 for obtaining information on an individual under false pretenses, while Section 620 “imposes criminal liability on any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to an unauthorized person.” Violators can face criminal penalties and imprisonment, the Bureau said in its announcement.
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.
Agencies release customer relationship and due diligence guidance
On July 6, the FDIC, Federal Reserve Board, FinCEN, NCUA, and OCC issued a joint statement concerning banks’ risk-based approach for assessing customer relationships and conducting customer due diligence (CDD). Specifically, the joint statement reinforces the agencies’ “longstanding position that no customer type presents a single level of uniform risk or a particular risk profile related to money laundering (ML), terrorist financing (TF), or other illicit financial activity.” Banks are reminded that they must apply a risk-based approach to CDD and adopt appropriate risk-based procedures for conducting ongoing CDD when developing risk profiles of their customers. Because customer relationships present varying levels of ML, TF, and other illicit financial activity risks, the agencies advised banks to, among other things, (i) understand the nature and purpose of customer relationships; and (ii) “conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”
Additionally, banks that comply with applicable Bank Secrecy Act/anti-money laundering (BSA/AML) legal and regulatory requirements and effectively manage and mitigate risks related to the unique characteristics of customer relationships, “are neither prohibited nor discouraged from providing banking services to customers of any specific class or type,” the agencies said, adding that “as a general matter” they will not direct banks to open, close, or maintain specific accounts as they “recognize that banks choose whether to enter into or maintain business relationships based on their business objectives and other relevant factors, such as the products and services sought by the customer, the geographic locations where the customer will conduct or transact business, and banks’ ability to manage risks effectively.” Banks are encouraged “to manage customer relationships and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers.”
The joint statement is applicable to all customer types referenced in the Federal Financial Institutions Examination Council (FFIEC) BSA/AML Examination Manual, as well as to those not specifically addressed in the manual. These include “independent automated teller machine owners or operators, nonresident aliens and foreign individuals, charities and nonprofit organizations, professional service providers, cash intensive businesses, nonbank financial institutions, and customers the bank considers politically exposed persons.” The agencies reiterated that the joint statement does not alter existing BSA/AML legal or regulatory requirements, nor does it establish new supervisory expectations. Moreover, the FFIEC BSA/AML Examination Manual does not establish requirements for banks, nor should the inclusion of sections on specific customer types be interpreted as a signal that certain customer types present uniformly higher risk.
DOJ charges six with crypto fraud
On June 30, the DOJ charged six individuals in four separate cases for allegedly playing a role in several cryptocurrency-related fraud schemes. In its press release announcing the indictments, the DOJ said these schemes include “the largest known Non-Fungible Token (NFT) scheme charged to date, a fraudulent investment fund that purportedly traded on cryptocurrency exchanges, a global Ponzi scheme involving the sale of unregistered crypto securities, and a fraudulent initial coin offering.”
- Crypto NFT Scheme: The DOJ charged a Vietnamese national with one count of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering related to his involvement in an NFT project, in which the individual and his co-conspirators allegedly engaged in a “rug pull” that ended the investment project and stole roughly $2.6 million from investors. Shortly after the rug pull, the DOJ said in its announcement that the individuals allegedly “laundered investors’ funds through ‘chain-hopping,’ a form of money laundering in which one type of coin is converted to another type and funds are moved across multiple cryptocurrency blockchains.” The individuals also allegedly used decentralized cryptocurrency swap services to hide the trail of investors’ stolen funds.
- Crypto Ponzi and Unregistered Securities Scheme: The DOJ charged two Brazilian nationals and a Florida resident with one count of conspiracy to commit wire fraud and one count of conspiracy to commit securities fraud in connection with a global cryptocurrency-based Ponzi scheme that generated approximately $100 million from investors. The Brazilian nationals were also charged with conspiracy to commit international money laundering. According to the DOJ, the individuals fraudulently promoted a cryptocurrency investment platform and unregistered securities offering by misrepresenting a purported proprietary trading bot and falsely guaranteeing returns to investors. The Brazilian nationals allegedly laundered investors’ funds through a foreign-based cryptocurrency exchange and paid earlier platform investors with money obtained from later investors, the DOJ said. The SEC also filed a lawsuit against all three individuals and their company in the U.S. District Court for the Southern District of Florida.
- Crypto Initial Coin Offering Scheme: A California resident who founded a cryptocurrency investment platform was charged by the DOJ with one count of securities fraud for his role in a cryptocurrency fraud scheme involving the platform’s initial coin offering (ICO), which raised roughly $21 million from investors globally. According to the DOJ, the individual falsified information in company white papers for prospective investors, promoted fake testimonials, and fabricated purported business relationships with the Federal Reserve Board and dozens of major companies to appear legitimate.
- Crypto Commodities Scheme: The DOJ charged the owner of a cryptocurrency investment platform with one count of conspiracy to commit wire fraud, four counts of wire fraud, one count of conspiracy to commit commodities fraud, and one count of obstruction of justice. The Nevada resident allegedly raised approximately $12 million from investors by using the platform to solicit investors’ participation in an unregistered commodity pool (“a fund that combines investors’ contributions to trade on the futures and commodity markets”), told investors that he used a trading bot that “could execute over 17,000 transactions per hour on various cryptocurrency exchanges” to earn profits, and falsely represented that this trading bot would generate between 500 to 600 percent returns on the amount invested.
“Our office is committed to protecting investors from sophisticated scammers seeking to capitalize on the relative novelty of digital currency,” U.S. Attorney Juan Antonio Gonzalez for the Southern District of Florida stated. “As with any emerging technology, those who invest in cryptocurrency must beware of profit-making opportunities that appear too good to be true.”
FINRA fines firm $2.8 million for faulty trade confirmations
On June 29, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), which ordered a New York-based member firm to pay $2.8 million to settle allegations that it sent customers inaccurate trade confirmations. According to FINRA, from November 2008 through the present, the firm allegedly sent customers roughly “270 million confirmations that inaccurately disclosed the firm’s execution capacity, the customer’s price, the market center of execution, or whether the trade was executed at an average price.” FINRA attributed the inaccuracies to 11 underlying issues, including technology issues, a drafting error, and a misunderstanding of regulatory guidance that allegedly went undetected for at least five years. Additionally, FINRA claimed that from at least November 2008 through March 2020, the firm failed to establish and maintain a supervisory system, including written procedures, to achieve compliance with the confirmation requirements, and claimed this alleged failure “persisted even though, by mid-2017, [the firm] was aware due to FINRA examinations of multiple systemic issues resulting in tens of millions of inaccurate confirmations.” Rather than implementing a “reasonable” supervisory system, FINRA contended that the firm took a year to set up a system and procedures that monitored only whether confirmations were delivered, not whether they were accurate. The firm neither admitted nor denied the findings set forth in the AWC agreement but accepted and consented to the entry of FINRA’s findings and censure and agreed to certify within 120 days that it corrected the identified issues.
Agencies list distressed middle-income areas
On July 1, the FDIC, Federal Reserve Board, and the OCC released the 2022 list of distressed or underserved nonmetropolitan middle-income geographies where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration. The agencies designated the identified distressed or underserved nonmetropolitan middle-income geographies in accordance with their CRA regulations that continue to “reflect local economic conditions, including unemployment, poverty, and population changes.” As previously covered by InfoBytes, the agencies released a joint Notice of Proposed Rulemaking (NPRM) in May to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. Under the CRA, banks are encouraged to help meet the credit needs of the local communities in which they are chartered, including low- and moderate-income neighborhoods. The agencies will receive comments on the NPRM through August 5.
Yellen stresses importance of stablecoin regulatory framework
On June 30, U.S. Treasury Secretary Janet Yellen discussed stablecoin risks during a meeting of principals representing the President’s Working Group (PWG) on Financial Markets in addition to the OCC, FDIC, and the CFPB, where she reiterated her call for a regulatory framework for stablecoins. Participants discussed developments since the release of a stablecoin report issued by the PWG, OCC, and FDIC last November (covered by InfoBytes here). The report noted that stablecoins may be more widely used in the future as a means of payment, which Yellen said at the time could increase “risks to users and the broader system.” The report also recommended that Congress promptly enact legislation to address the risks of payment stablecoins and ensure that payment stablecoins and payment stablecoin arrangements are subject to consistent and comprehensive federal oversight.
According to Treasury’s readout, Yellen “emphasized how recent events have underscored the urgent need to ensure that stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis” and “highlighted the need to continue to constructively engage in serious legislative efforts to promptly put in place a regulatory framework for stablecoins that would address current and future risks, such as those related to runs, safety and soundness, consumer protection, the payment system, and the concentration of economic power, while complementing existing authorities with respect to market integrity, investor protection, and illicit finance.” She also “commended the steps that individual agencies have taken within the scope of their mandates and authorities.”
U.S.-UK partnership exchanges views on crypto, digital assets
On July 1, the U.S. Treasury Department issued a joint statement providing an overview of recent meetings of the U.S.-UK Financial Innovation Partnership (FIP) where Regulatory and Commercial Pillar participants exchanged views “on topics of mutual interest in the U.S. and UK regarding crypto and digital asset ecosystems.” Participants also discussed options for deepening ties between U.S. and UK financial authorities on financial innovation. As previously covered by InfoBytes, the FIP was created in 2019 as a way to expand bilateral financial services collaborative efforts, study emerging fintech innovation trends, and share information and expertise on regulatory practices. The first meeting of the FIP took place in August 2020 (covered by InfoBytes here). Topics discussed in the most recent meeting included, among other things, crypto-asset regulation and market developments, including recent developments related to stablecoins and the exploration of central bank digital currencies, and other recent market developments on digital assets. Participants acknowledged “the continued importance of the ongoing partnership on global financial innovation as an integral component of U.S.-UK financial services cooperation.”